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Weak expenses overshadow Japan's surprise in the first quarter of economic expansion by Reuters



© Reuters. FILE PHOTO: Standing in front of shopping mall near the Bank of Japan building in Tokyo

By Tetsushi Kajimoto and Playing Kihara

TOKYO (Reuters) – Japan's economic growth was unexpectedly accelerated in January-March, driven by net contributions from exports and defies the forecasts for a contraction in the world's third largest economy.

However, the surprise expansion was mostly due to the fact that imports fell faster than exports, probably reflecting the weak domestic demand, a problem for politicians with a planned sales tax scheduled to enter into force in October.

The study of this challenge was private consumption and investment expenditure, both declining in the first quarter, while exports hit the largest decline since 201

5.

Japan's economy grew by an annual 2.1% First quarter data showed from gross domestic product (GDP) Monday, market expectations for a 0.2% contraction. It followed a revised 1.6% increase in October-December.

The soft patches behind the headline GDP number could speculate that Prime Minister Shinzo Abe may postpone a two-fold increase in VAT in October.

"All the major components of GDP are negative," says Hiroaki Muto, chief economist at Tokai Tokyo Research Center.

"The economy has already peaked, so we probably have a mild recession," he said. "No one would object to delaying the sales tax."

The surplus on GDP growth was largely due to a 4.6% decline in imports, the largest drop in a decade and more than a 2.4% drop in exports.

As imports fell more than exports, net exports – or shipments minus imports – increased 0.4 percentage points to GDP growth.

Private consumption fell 0.1% and investment costs fell 0.3%, doubting politicians' belief that solid domestic demand will compensate for the pain of slowing exports.

There have been growing calls from some former politicians to delay the sales tax due to worsening domestic and external conditions.

However, the Minister of Economy Toshimitsu Motegi faced a brave face on Monday and said there was no change in the government's plan to raise the sales tax to 10% from 8% in October.

"There is no change in our view that the basic prerequisites for domestic demand remain solid," Motegi told reporters after the release of the data.

But some analysts warn that Japan's economy will continue to face headwinds that could slow down growth in coming quarters.

"Consumption consumption is likely to remain weak because wages do not increase so much," said Kentaro Arita, senior economist at the Mizuho Research Institute.

"In the second quarter, GDP could be zero or slightly negative because exports remain weak. This, coupled with weakening capital expenditure, means there is a risk of a recession."

GDP data comes as the government's coincident economic indicator marked the opportunity for Japan to come into a recession when exports and factory production were hit by China's slowdown and Chinese-American trade war.


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